Callaway Golf logo

Company Introduction

Callaway Golf Co (NYSE:ELY) was founded in 1982, and is headquartered in Carlsbad, California. Callaway Golf Co (NYSE:ELY) designs, develops, and markets golf clubs. The company manufactures titanium drivers, fairway woods, irons, wedges, and various putters. It serves customers both domestically and internationally. The company sells its products principally in the United States, Europe, Japan, and the rest of Asia. The company employs approximately 2,100 full time employees.

Stock Snapshot

As of Monday, October 1st,2012, the stock for Callaway Golf Co (NYSE:ELY) closed at USD 6.40 per share, with a total market capitalization of USD 418.28 million. The stock has been trading at a P/S ratio of 0.47, and a P/B ratio of 0.77. Over the last three months, the stock has witnessed an average daily volume of 526,517 shares.

Competitor Analysis

GRAPHITE DESIGN INC manufactures and sells carbon fiber reinforced plastic shafts for golf clubs. The Company also assembles golf clubs. The company has been trading at a stock price of 340 JPY, representing a P/E ratio of 3.26, a P/S ratio of 0.58, and a P/B ratio of 1.22. The stock has a total market capitalization of JPY 2361.5 million. The stock has provided an average 1 year return of more than 50%.

Financial Analysis

Top line

Net sales for 6MFY12 were recorded at USD 566.2 million, as compared to USD 559.4 million for the corresponding period last year; representing a YoY increase of 1.2%. This increase was primarily due to a rise in sales of the company’s accessories and other products, due to increased sales of packaged sets, GPS devices, and apparel. Also, an increase in putter and woods sales from introduction of new product lines, impacted the top line. The decrease in the market for irons adversely impacted the top line.

Gross Profit

For 6MFY12, gross profit was recorded at USD 235 million, compared to USD 226.3 million in 6MFY11; representing YoY increase of 3.8%. Gross profit margin for 6MFY12 was recorded at 42%, as compared to 40% in 6MFY11. The increase in gross margin was primarily attributable to the company’s completion of its global operations strategy initiatives, which resulted in USD 12.10 of costs recognized in 6MFY11. An increase in club component cost adversely impacted the gross margin.

Net Earnings Net income for 6MFY12 increased to $34.6 million, from a net loss of $46.2 million in the comparable period of 2011. Diluted earnings per share increased to USD0.41 in 6MFY12 compared to losses per share of USD 0.80 in 6MFY11.

Financial Position

As of 30th June 2012, the company had USD 27.99 million in cash balances, resulting in a cash value per share of USD 0.43. Total debt stood at USD 70.15 million, resulting in a debt to equity ratio of 12.97. The company has a book value per share of USD 8.27

Factors to Watch Out For:

Value investors should watch out for this stock, as it looks an interesting value proposition, as a result of the following reasons:

* Book value per share higher than the current stock price!

* Revamped product line expected to bring higher revenues!

* Progress in cost reduction initiatives taken by the management!